Direct Taxes - Indian Budget 2006 - 2007 (170 to 172)

Direct Taxes (Cntd…)

170. The Permanent Account Number (PAN) of the Department of Income Tax is the critical element in capturing incomes and expenditures. Scrutiny of Annual Information Returns (AIR) on high-value transactions reveals that 60 per cent of the transactions are without quoting PAN. Hence, I propose to take the power to issue PAN suo motu in certain cases. I also propose to take the power to direct persons to apply for PAN in certain cases. I propose to notify, in due course, more transactions for which quoting of PAN will be mandatory. I also propose to prescribe a few more transactions to be reported in AIRs.

171. Last year, I introduced two new taxes. The Banking Cash Transaction Tax (BCTT) has turned out to be a boon, not for the modest revenues it brought which was never its purpose, but for the remarkable trails that it has helped establish. To cite just one example, huge cash withdrawals in a bank branch in Chandni Chowk, noticed through the BCTT, led the Department of Income Tax to three entities which were carrying on the business of purchasing demand drafts from traders at a discount and helping the traders to avoid both sales tax and income tax. These entities would deposit the demand drafts in their own accounts and withdraw the cash. In a period of 18 months, they had laundered Rs.1,500 crore. BCTT has also helped the Department to detect bogus bills, accommodation entries, artificial loss claims and dummy firms. I propose to continue the BCTT for some more time until the AIR system is able to capture all significant financial transactions.

172. Fringe Benefit Tax (FBT) was introduced as a revenue raising measure. FBT can be justified on the principles of horizontal equity and vertical equity. Nevertheless, I have reviewed it with an open mind. I have also taken on board the views expressed by the apex chambers of commerce. I propose to make the following changes in chapter XII-H of the Income Tax Act:
• Value the benefit in the form of ‘tour and travel’ at 5 per cent instead of 20 per cent;
• Value the benefit in the form of ‘hospitality’ and ‘use of hotel boarding and lodging facilities’, in the case of airline companies and shipping industry, at 5 per cent instead of 20 per cent;
• Exclude the expenses on free samples of medicines and of medical equipment distributed to doctors;
• Exclude the expenses incurred on brand ambassador and celebrity endorsement; and
• Prescribe a threshold of Rs.100,000 under section 115WB(1)(c) so that only a contribution by an employer to an approved superannuation fund in excess of Rs.100,000 per year per employee will attract FBT. Under section 80C there is already an exemption up to Rs.100,000 for contribution by an employee to an approved superannuation fund. Honourable Members will note that, under these two provisions, there can now be a tax-exempt contribution up to Rs.200,000 per year for the benefit of an employee. This allowance, I believe, is generous enough in the case of an overwhelming majority of employees.
With these changes, I am confident that the debate on FBT will draw to a close. Let me remind everyone concerned once again that FBT is justified on the principle of equity.